]]>With the introduction of the revised payment services directive (PSD2) in January 2018 just around the corner, banks face a new and potentially disruptive era. Open APIs and PSD2 will, in time, disrupt traditional banking. It’s no surprise, then, that the majority of global banks are planning to invest heavily in open banking initiatives by 2020, as revealed in a recent Accenture study.
Explore the results

But are consumers ready to embrace the era of open banking? Customers will, for example, be able to share access to their financial data with non-bank third parties, which could provide customers with new, innovative services using their customer data. However, consumers appear to have their doubts and concerns about financial services being provided by non-financial third parties. Another recent Accenture study shows that two-thirds of consumers in the UK said they won’t share their personal financial data with non-bank providers.

These results suggest that banks already have an extremely valuable competitive advantage they can use as they build their open banking initiatives: their customers’ trust. But in order to capitalize on this in a rapidly changing market landscape, banks need to act now and create their strategy for winning in the era of open banking.

The banks need to move quickly because while they currently possess the advantage of customers’ trust, the study shows millennials are already significantly more open to using services from non-banks. Banks should use the time before PSD2 APIs become mandatory to strategically plan for open banking, create compelling digital launches, link into ecosystems and gather a developer community to be better positioned before non-banks make their moves.

In the Nordics, we see quite a mixed degree of preparedness between various banks to enter the new market. In contrast, for example, retail companies seem to be actively grasping the upcoming opportunities. Many Nordic banks face challenges from adapting their legacy systems and architecture to become Open API-enabled business models.

Reach out to us to learn more about how to address open banking in order not just to comply—but to compete.

Jostein Damminger, Nordic Banking Lead

]]>http://bankingblog.accenture.com/open-banking-why-trust-matters/feed04690http://bankingblog.accenture.com/open-banking-why-trust-mattersKey themes at Sibos 2017http://feedproxy.google.com/~r/AccentureBankenBlog/~3/SDiagCrX4Qk/key-themes-at-sibos-2017
http://bankingblog.accenture.com/key-themes-at-sibos-2017#respondMon, 27 Nov 2017 13:44:58 +0000http://bankingblog.accenture.com/?p=4659Connecting more than 8,000 decision makers and thought leaders across the industry, Sibos 2017 in Toronto was once again the platform where the global financial community explored the disruptions and opportunities in payments driven by innovation, technology and new business models. Each year we report on the themes we observe at Sibos to help readers…

]]>Connecting more than 8,000 decision makers and thought leaders across the industry, Sibos 2017 in Toronto was once again the platform where the global financial community explored the disruptions and opportunities in payments driven by innovation, technology and new business models.

Each year we report on the themes we observe at Sibos to help readers keep on the pulse of the payments industry. Some themes endure year-after-year, as shown in the table below—real-time payments, cybersecurity, fintechs, blockchain and open APIs. Perhaps they are unsurprising, but individually each shows it is a driver of enduring change, and together they show how the industry is transforming and rotating to the new digital era.

Table 1 | Five most repeated themes at Sibos over the past five years

Based on the discussions and presentations at this year’s event, we identified ten key themes, including the sustained multi-year themes from the table above.

1.Market infrastructure renewal. Faster Payments in the UK has announced a renewal programme and has requested expressions of interest, a hot topic among technology companies in the exhibition booths at Sibos. This is just one example of a growing realisation by both banks and central infrastructure providers that adoption of technologies such as AI and machine learning, real-time messaging, 24×7 operations, analytics, cloud, IoT and open APIs is a major driver of change. New business opportunities and new business models, with the scalability for massive increases in transaction volumes will result from this change. Expect to see a growing number of major technology renewal programmes in payments over the next year.

2. Cybersecurity remains a top industry agenda, not just as an IT issue, but as a business issue affecting the wide spectrum of the digital banking landscape. Banks and market infrastructure will need to be one step ahead of perpetrators, due to the diverse and fast-evolving nature of threats to information security. This year, cooperation was the key imperative for cybersecurity. There has been significant cooperation between banks and governments internationally, but there was consensus that this cooperation needs to increase, to share information to protect the security of the system as a whole, including building fail-proof back-ups at an industry level.

3. Real-time payments were widely discussed in both conference and private forums. With NPP (Australia), SEPA SCT Inst (Europe) and TCH (USA) all due to go live shortly, there was a strange mood of nervousness and uncertainty instead of the excitement that might be expected. It may be a case of holding back on celebrations until systems are live, but there was a sense that industry participants still do not know why instant payments are necessary, nor how to commercialise them, or they fret about an elusive “killer app”. By Sibos next year, these instant payments systems will have come on-stream, and it will be interesting to see the prognosis on their adoption.

The use of the ISO20022 standard for instant payments was a related theme. Several times we heard that the richer data in ISO20022 instant payments messages is more interesting than the speed of the payment. Benefits include development of new data-rich products tailored to customer needs, and provision of mechanisms to better manage cost and risk. In addition, the standard enables Fintechs to access payment infrastructures, bank innovation and interoperability for cross-border payments.

4. The SWIFT GPI and Innovation in Cross-Border Payments initiative was promoted in conference literature and conference sessions by SWIFT. Launched this year, the initiative formalises the processing, SLAs and tracking of SWIFT messages in correspondent banking. It generally seems to be a success, with both banks and corporates claiming benefits from the clarity and certainty it provides in their payment processing. However, GPI is a same-day payment initiative, and with instant payments gaining traction in domestic payments, there is a sense that GPI is a welcome, but interim, solution. Will an instant GPI be next?

Ripple is an example of an instant payments cross-border solution that uses distributed ledger technology (DLT). It is also a potential competitor to SWIFT, and is expanding its network (Ripple also ran its own rival conference in parallel in Toronto). Other DLT cross-border solutions are likely to appear over the coming year, making cross-border payments a hotbed of new competition.

However, the innovation so far in cross-border payments is restricted to the clearing layer. Innovation has yet to reach the settlement layer probably due to lack of dialogue across different central banks. When it comes, it will surely catalyse cross-border payments interoperability.

5. Corporate banking is at the heart of Sibos, and while those from the wholesale side of banking worry that Sibos has become too focused on retail payments and retail payments innovation, the importance of corporate banking and innovation was very much evident. A key theme we observed is that corporate banking needs to address its constituents holistically—lending, payments, FX and trade. Strategies set across these constituents to drive initiatives for infrastructure renewal and innovation are likely to be more optimal, and more corporate customer-centric compared to siloed approaches in each individually. Change programs in corporate banking will become more prevalent and strategic.

6. Innovation has been a big topic at Sibos for many years, and it was clear that banks are stepping up a gear in innovation. This year, banks are asking how to build an innovation function and how to roll out innovation into the business. Many have innovation labs and fintech programs, and the next step is to industrialise innovation, to make it a new mindset and deliver significantly better services and products to customers. Fintechs were in evidence in the exhibition hall and the Innotribe innovation stream was much more integrated with the main Sibos event than it has been in previous years.

7. Open APIs was the standout technology at the conference. Mentioned in session after session, and promoted in many exhibitor booths, it is a clear leader in bank change initiatives and in fintechs, compared to other hot technologies such as blockchain or AI. The growth of open APIs is also leading to growth in the data economy where banks are looking at innovative ways to monetise data and customer information. There is a significant opportunity for banks to build new revenue models around API/data monetisation and we are already seeing a few players in the market who have solutions supporting it. Banks will very soon start demanding tools for integrating APIs with billing and invoicing, and complex multi-party monetisation models are likely.

Banks are also starting to explore new use cases that combine banking and non-banking APIs to satisfy everyday customer needs, integrating banking into their daily interactions (Accenture calls these Living Services)

8. Open Banking is fast becoming a global phenomenon. In Europe, it is driven by government authorities and regulation, while in the US, innovation and commercial opportunity are driving change; in Australia, it is both. We can expect open banking to grow significantly in importance over the next year, with revenue models becoming a hot topic. Inspiration is coming from telecom/ carrier billing which is seen as an industry model for developing new monetisation models.

Linked to open banking, platform banking is emerging as a related theme, with much talk on emulating platform business strategies (Google, Facebook etc.) in banking, with the associated network effects and distribution power.

9. Blockchain was a big topic, with general agreement it will become a foundation of financial services over time, but it was evident that the technology is still not ready—perhaps next Sibos there will be more to report?

Separate to the technology, banks are also realising that cryptocurrencies could go mainstream in some form, possibly as crypto-fiat currencies or in the form of digital assets such as Bitcoin and Ether, requiring new banking products and services. What these will be is too early to say, although it is also too early to set standards and regulation without stifling innovation. Co-creation of rules and standards between regulators and the industry was seen as a pragmatic way forward.

10. Banks and Fintechs. In direct contrast to reports over the past year that fintech collaboration with banks is more likely than competition, there was a palpable sense at Sibos that financial services companies, in fact, face an existential threat from fintechs. Much of this threat is from big tech, the GAFAAs (Google, Amazon, Facebook, Apple, Alibaba), particularly in the distribution of banking products and services. While banks have the potential to stay relevant through complementary partnerships with fintechs and big techs, there was a lot of discussion about the true role of banks against a background of fintech disruption and accelerating adoption of technologies such as open APIs and blockchain. Advisory services are one area where banks agree they have a sustainable role and can generate value.

Sibos 2018 is in Sydney. It will be fascinating to be there to see how each of these ten themes has developed in a year’s time.

]]>http://bankingblog.accenture.com/key-themes-at-sibos-2017/feed04659http://bankingblog.accenture.com/key-themes-at-sibos-2017Ten mega trends that will drive the future of paymentshttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/ASakzZJonaE/ten-mega-trends-will-drive-future-payments
http://bankingblog.accenture.com/ten-mega-trends-will-drive-future-payments#respondMon, 20 Nov 2017 23:51:52 +0000http://bankingblog.accenture.com/?p=4644In “Paradise Lost”, 17th-century English poet John Milton describes two types of warriors: One group are “employed in sporting games and exercises” and “sing in the valleys”, while the other group “rend up both rocks and hills”, “make wild uproar” and “ride the air in whirlwind”. Milton’s bifurcation also applies to the modern-day payments industry. With fast-paced…

]]>In “Paradise Lost”, 17th-century English poet John Milton describes two types of warriors: One group are “employed in sporting games and exercises” and “sing in the valleys”, while the other group “rend up both rocks and hills”, “make wild uproar” and “ride the air in whirlwind”.

Milton’s bifurcation also applies to the modern-day payments industry. With fast-paced disruptive change sweeping the industry, are traditional payment players going through the motions trying to protect their traditional sources of profit or are they willing to be combative and create “wild uproar” by driving radical change?

To help banks make sense of this fast-changing landscape, Accenture has identified ten payments mega trends from our 2017 North America Consumer Payments Pulse Survey.

One key trend is banks’ new-found enthusiasm for collaborating with digital consumer-to-business and fintech partners to both exploit the power of an exponentially growing network and deliver benefits to customers. Tapping into these networks allows payments players to multiply capabilities and extend their reach without building and investing from scratch. One example is Zelle®. This API-enabled network of more than 50 partners, including Ally, Wells Fargo, Bank of America and JPMorgan Chase, offers real-time, person-to-person payments and disbursements through one recognisable brand. According to Zelle, some 85 million consumers can now experience its services through the mobile banking apps of the Zelle Network® participant banks. The app quickly ramped up to $33.6 billion in network volumes and 100 million transactions in the first half of 2017. This scale gives participating banks the edge they need to compete effectively with challengers like Venmo from PayPal. Creating and capitalising on network effects require banks to participate in digital ecosystems beyond their own walls and be willing to subsume to some degree their own operating models, cultures and strategies. Just as the payments industry of 50 years ago was energised by the emergence of the credit card networks, we are now seeing a new set of digital networks emerge that also have the power to reshape payments.

Another critical trend driving the future of payments is the democratisation of payments acceptance. Today, everyone can be a merchant and every device can accept payments, whether you are talking traditional point-of-sale, online or mobile. Enabled by new entrants like Stripe and Square, all it takes is connectivity, a portable card reader or a website to create the next-generation POS. This “payments everywhere” wave that enabled small merchants and peer-to-peer commerce has also created new growth opportunities for payments players; they can address such increasingly attractive markets as large merchant payment margins get more compressed. This democratisation of payments acceptance has also created new opportunities for analytics-based lending and data monetisation strategies, which also offer new and appealing revenue streams for payments players.

These are just two of the ten payments mega trends identified in our recent report, Driving the Future of Payments: 10 Mega Trends, and I encourage you to explore the other eight. Regardless of what type of payments warrior you are, we hope this report can help you ride the whirlwind to the future, as simply singing in the valley is unlikely to be a successful long-term strategy.

]]>http://bankingblog.accenture.com/ten-mega-trends-will-drive-future-payments/feed04644http://bankingblog.accenture.com/ten-mega-trends-will-drive-future-paymentsCISO importance is prompting internal role changehttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/3QbbASbJ5Gg/ciso-importance-prompting-internal-role-change
http://bankingblog.accenture.com/ciso-importance-prompting-internal-role-change#respondWed, 15 Nov 2017 23:26:23 +0000http://bankingblog.accenture.com/?p=4616The value of the Chief Information Security officer has never been more evident, but is the role well defined and structured enough? Banks have witnessed a spate of cyber breaches recently with the financial sector experiencing 300 percent more cyberattacks than any other industry. More than 75 cyberattacks against financial services companies were reported in…

]]>The value of the Chief Information Security officer has never been more evident, but is the role well defined and structured enough?

Banks have witnessed a spate of cyber breaches recently with the financial sector experiencing 300 percent more cyberattacks than any other industry. More than 75 cyberattacks against financial services companies were reported in first nine months of 2016.

A string of regulations requiring banks to adopt a more open architecture will further expose them to heightened cybersecurity risks, and the rapid pace of digitization in banking will only add to it.

However, the banking industry is yet to see an increased responsibility in the role of a Chief Information Security officer (CISO). A study by Gartner showed that only 20 percent of CISOs report to the CEO with ~60 percent of them reporting to the Chief Information Officer (CIO) or an IT executive. With the growing importance of security in an organisation, this current reporting structure might need to change more to favour CISOs reporting directly to the CEO.

Fig 1. Majority of CISOs report to the CIO

Source: Gartner- Determining whether the CISO should report outside of IT

CISOs need to have impartiality when it comes to budget and ability to influence the CEO

There have been instances of uneven allocation of the IT budget for spend on cybersecurity, resulting in CISOs getting a smaller piece of the pie. Studies have shown that information security takes only a tiny three to five percent of the overall IT budget.

UK banks have seen some traction here: Barclays has merged its two security functions, with previous Chief Security Officer (CSO) and CISO roles coming together under a combined CSO. Lloyds has set up a cybersecurity advisory panel to bring an industry perspective on key cyber-related activities and threats. The panel is part of a subcommittee to the Board Risk Committee (BRC) and the Chief Risk Officer regularly informs the BRC of the aggregate risk profile of the bank.

Decouple the CISO from IT?

Having the CISO report outside of the IT leadership could have several advantages:

Direct oversight from the CEO and business leadership could ensure key security considerations are addressed in business strategy and associated investments.

Reporting outside of the CIO puts the CISO and CIO on more equal footing.

It could help organisations attract more experienced security executives who might expect to report directly to the CEO, not a CIO.

IDC believes that by 2018, increases in cybersecurity threats could result in 75 percent of CSOs and CISOs reporting to the CEO. Some regulators are even making it mandatory: In Israel, there are laws dictating that CISOs report directly to the CEO. UK banks should take a cue and become the financial services gold standard in cybersecurity governance.

Banks need to reconsider the CISO role for greater cybersecurity effectiveness

The primary goal of the CISO is not to protect technology but to protect the business. Though the position has risen in the organisational structure to the inner circles of the C-suite, a CISO’s ability to dictate a budget and make decisions independently may still depend on where the position falls in the organisational structure. Further, the role of cybersecurity experts has become increasingly important on the board, which has translated to higher salaries and attrition as well. Empowering CISOs might help mitigate this, through increasing representation on the board, direct reporting to the CEO, independent budget allocation and a role in strategy formulation.

]]>http://bankingblog.accenture.com/ciso-importance-prompting-internal-role-change/feed04616http://bankingblog.accenture.com/ciso-importance-prompting-internal-role-changeWant to change your bank’s culture? Change with the business.http://feedproxy.google.com/~r/AccentureBankenBlog/~3/I92bM13oeFk/change-bank-culture-change-business
http://bankingblog.accenture.com/change-bank-culture-change-business#respondMon, 06 Nov 2017 21:56:32 +0000http://bankingblog.accenture.com/?p=4573My thanks to Diana Barea, Managing Director in Accenture Strategy’s Talent & Organisation Practice for the inspiration behind this blog. Culture transformation programmes are ten-a-penny in businesses across all industries. That’s no surprise. The pace of change—technological, economic and competitive—means all large organisations must now think very differently about how they operate and the way…

Culture transformation programmes are ten-a-penny in businesses across all industries. That’s no surprise. The pace of change—technological, economic and competitive—means all large organisations must now think very differently about how they operate and the way their people work.

For banks, some extra pressures are pushing them in this direction. Tougher post-crisis regulation has introduced multiple layers of complexity and bureaucracy into their businesses. These can get in the way of agility and responsiveness. Personal accountability for decision-making can stifle spontaneity. And traditional hierarchical structures encourage rigidity (and discourage innovation).

All this at a time when disruptive competition from non-traditional sources poses a hugely potent threat. Bank leaders know they must adapt or lose relevance. They have to encourage their people to collaborate better, have greater trust in leadership, make decisions rapidly and, crucially, be more agile and innovative at every level of the enterprise.

Culture change is an agenda we hear all the time in our work with financial services businesses. And in this blog—the first in a short series—we’re introducing what we’ve learned from experience. The bottom line? Culture change is the outcome. Transforming how business is done is essential to make it happen.

Whatever the organisation, the primary objective for culture change is the same: getting back to your ‘prime’. Or put it another way: As businesses mature with age, looking ahead entails looking back. Improved agility and responsiveness hinge on rejuvenation and re-energisation.

We identify five core ‘beliefs’ that are key to making this happen. In this blog, we’ll introduce them. Next time, we’ll examine them—and what they look like in practice—in greater detail.

Firstly, culture change must be insight-driven. As a baseline, businesses need a laser-sharp focus on where they are today, how they’re behaving as an organisation, and how well they’re doing against key measures. That means a data-powered approach is essential. It’s not enough to base culture change programmes on a few engagement surveys or sentiment reviews on Glassdoor. Precision is critical. And that includes understanding how employee behaviours are being reinforced in their day-to-day jobs—and how to change them.

Secondly, successful culture change programmes put people (customers and employees) at the centre. Linked to this is the third key belief: They’re also co-created. That means leaders, colleagues and employees at every level need to be involved in shaping and enabling change. It’s the only way to build and sustain trust in the organisation.

The fourth belief: Recognise how tiny changes can make a massive difference to performance. It’s all about understanding the cumulative effect these changes will have. That means experimentation. Hypothesise, prototype, proof of concept, scale. Repeat.

Lastly, embed change everywhere. That means leaders must be demonstrably committed, living out the change and embodying it in everything they do. It’s through their example that others will be encouraged to shift their behaviour.

Next time, we’ll take a closer look at these beliefs. Meanwhile, thanks for reading.

]]>http://bankingblog.accenture.com/change-bank-culture-change-business/feed04573http://bankingblog.accenture.com/change-bank-culture-change-businessBanks decide whether Open Banking will be the rose or the thornhttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/nDT_W9-aw4Y/banks-decide-open-banking-rose-thorn
http://bankingblog.accenture.com/banks-decide-open-banking-rose-thorn#respondMon, 06 Nov 2017 16:20:17 +0000http://bankingblog.accenture.com/?p=4580When it comes to Open Banking, regulatory, technological and competitive pressures are forcing banks to confront the choice posed by French critic, journalist and novelist Alphonse Karr: “We can complain because rose bushes have thorns, or rejoice because thorns have roses.” Recent Accenture research indicates that banks in Europe (where Open Banking is being mandated)…

]]>When it comes to Open Banking, regulatory, technological and competitive pressures are forcing banks to confront the choice posed by French critic, journalist and novelist Alphonse Karr: “We can complain because rose bushes have thorns, or rejoice because thorns have roses.”

Recent Accenture research indicates that banks in Europe (where Open Banking is being mandated) and in North America and Asia Pacific (where, at the moment, it is optional) appear to be choosing to admire the flowers.

View the results

Our recent poll of 100 payments executives suggests that banks are seeing the opportunities inherent in allowing customers to share access to their financial data (such as bank account balances and transaction history) with non-bank third parties, so that those third parties can then create apps and services in which banking is embedded. Ninety percent of respondents expect Open Banking to boost revenues by up to 10 percent. Nearly two-thirds of North America banks say that implementing Open Banking is critical to remaining relevant and competing with new entrants, such as fintechs and tech giants like Google, Apple, Facebook and Amazon. A minority of banks (37 percent in North America, 29 percent in Europe and 23 percent in Asia Pacific) already distribute banking products through third parties to consumers with whom they do not have a primary relationship, although these are often through traditional distribution partnerships rather than digital embedding.

Yet like a rose bush, Open Banking also comes with some thorny threats. Half of the banks are concerned that Open Banking will make them more vulnerable to security breaches and fraud, because banks must expose their proprietary software and application programming interfaces (APIs) to allow outsiders to integrate their services. This concern is particularly prevalent in Europe, where nearly two-thirds of banks think Open Banking will increase risk; a point maybe not unconnected with the new European GDPR data protection regulations and the stiff fines that will be levied for breaches. The other risk posed by Open Banking is a business one, and is the concern that banks will become commoditised product providers with their transactional services and their brands buried deep in transaction flows controlled by non-bank competitors.

When it comes to Open Banking, the ability of banks to focus on the flowers and not the thorns will be helped by three strategic actions:

Position Open Banking initiatives as a strategic growth priority, an efficiency opportunity, and a chance to improve the customer experience. Consider Citibank’s CitiConnect service.

Treat data as a new digital business and monetise it. That is what the fidorOS platform aims to do.

Proactively help retailers who are familiar with PSD2 to use Open Banking to improve their products and services and be first to the table with value-added propositions and new services. For example, Mastercard recently announced that it is opening access to its blockchain API for merchants to create new digital commerce experiences.

Banks can turn Open Banking to their advantage, and are likely to see revenue decline if they adopt just a basic compliance mentality. But doing so depends on how they look at it: as a thorn to their existing value chain that they must minimise or avoid, or as an attractive new path to new products and services, incremental revenue streams, and a better experience for their customers. Done correctly, banks will be able to admire a glorious bouquet of roses at the centre of their business, rather than continually hunting for Band-Aids to stem the bleeding from pricked fingers.

]]>http://bankingblog.accenture.com/banks-decide-open-banking-rose-thorn/feed04580http://bankingblog.accenture.com/banks-decide-open-banking-rose-thornTarget black box costs for zero-based, Future-Ready Bankinghttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/uyOw0qrQ_Vs/target-black-box-costs-zero-based-future-ready-banking
http://bankingblog.accenture.com/target-black-box-costs-zero-based-future-ready-banking#respondTue, 10 Oct 2017 16:02:45 +0000http://bankingblog.accenture.com/?p=4532Seneca, the 1st-century Roman statesman, didn’t believe in luck. For him, what others called luck was when opportunity met preparation. Hopefully there aren’t many bank CEOs relying on luck to get them through their digital transformations. The opportunity in front of them is becoming clearer—to thrive in a more open and competitive banking industry by…

]]>Seneca, the 1st-century Roman statesman, didn’t believe in luck. For him, what others called luck was when opportunity met preparation. Hopefully there aren’t many bank CEOs relying on luck to get them through their digital transformations. The opportunity in front of them is becoming clearer—to thrive in a more open and competitive banking industry by being customer-centric and agile—but what of the preparation? What does a Future-Ready Bank look like? One big obstacle that banks need to tackle is their cost base; particularly, seeing and understanding “black box” costs and then assigning ownership of them in ways that provide competitive advantage.

Regardless of how committed a management team is to becoming Future-Ready, in the words of Muhammad Ali, “The hands can’t hit what the eyes can’t see.”

The black box refers to the complex and opaque costs, functions, processes and activities in banks that are not directly related to any single line of business. Comprising some 65 percent of a bank’s cost base, the complexity, centralisation, disparate data and non-accountability of the black box lands a knockout punch to bank profitability and evolution.

Banks can gain visibility into black box costs by bringing together data from the General Ledger, HR and AP systems, invoices, and other data sources to create a rich dataset that categorises costs in a meaningful way and clarifies cost ownership. It provides management with a front-to-back value chain view of the organisation, costs and headcounts tied directly to business line and revenue base.

Once banks have a clear view on this hefty share of their costs, they can assign responsibility for most, if not all of the cost base. Bank leadership can make such ownership concrete by creating a framework for rewarding managers based on successful cost management. Arguably, clarifying cost ownership represents the greatest shift in improving a bank’s ability to manage itself.

Read the report

With visibility in hand and ownership in place, banks are positioned to better re-enact zero-based approaches to get off the traditional ropes and transform to the “new”. They can challenge not only the cost, but also if the activity needs to be done in the first place—informed by actionable, granular-level data analysis on how cost, risk and capital interact, to then purge unwarranted activities.

Though not a new concept, zero-based budgeting is becoming more critical as rates and yield curves rise, compliance costs increase and new agile, digital-native contenders emerge. Rather than being boxed into a cost corner, banks can fundamentally rethink their path to efficiency, better their cost-income ratios and, ultimately, their digital readiness. It requires banks to establish a culture in which visibility, transparency, simplicity and ownership of costs are the goals of the organisation. With the right preparation, banks will be able to make their own luck in a digital future.

]]>http://bankingblog.accenture.com/target-black-box-costs-zero-based-future-ready-banking/feed04532http://bankingblog.accenture.com/target-black-box-costs-zero-based-future-ready-bankingThe atomization of payments: Part twohttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/mFWD18dllxo/atomization-payments-part-two
http://bankingblog.accenture.com/atomization-payments-part-two#commentsMon, 09 Oct 2017 13:39:53 +0000http://bankingblog.accenture.com/?p=4476In part one of my blog on atomizing payments, I explained how payments volumes are likely to expand 25 times or more in the future, resulting in trillions of new payments. In part two, I explain a precedent for this atomization and its implications, and how the payments industry needs to prepare. Precedent and Implications…

]]>In part one of my blog on atomizing payments, I explained how payments volumes are likely to expand 25 times or more in the future, resulting in trillions of new payments. In part two, I explain a precedent for this atomization and its implications, and how the payments industry needs to prepare.

Precedent and Implications

Atomization of communication is a precedent. Nowadays, communication is dominated by e-mail, texts and social media posts in volumes that dwarf those of the past using paper. Individuals typically send and receive hundreds of texts and e-mails each week, compared to a few letters in the past. It has taken about 20 years to reach this state, and volumes are still growing.

If atomization of communications is replicated in the payments industry, trillions of payments can become a realistic prospect. The implications are far-reaching.

Firstly, cards have no role to play. They may endure for many more years, but as an innovation of the 1960s, they are inefficient, expensive and fraud-prone, unsuited to the atomized payments landscape.

Secondly, merchant acquiring may disappear over time. Necessary in the past to connect merchants with the banking system and enable commerce, technology (for example open APIs) is superseding their role.

Thirdly, payment revenue will drop towards zero. Merchant fees are not sustainable and will simply be bypassed if maintained. Instead, new business models will emerge, based on the security, resilience and reach of transactions.

Fourthly, new account-to-account payment infrastructures and controls will be required to support the volume and bandwidth needed for atomized payments.

Lastly, the payment industry needs foresight to plan for this change.

Sleepwalking towards the future

Kevin Hanley at RBS recently gave a great Finextra interview in which he talked about the divergence between technology changing exponentially and industries, organizations and individuals thinking linearly. Payments is an industry changing exponentially, however, much of it remains in a linear mode, underestimating the impact of this change. For example, earlier this year, at a conference I was rebuked for forecasting UK contactless card volumes would rise from three billion in 2016 to six to nine billion transactions this year. A member of the ATM industry, passionate about cash, described my forecast as irresponsible. However, UK Finance figures already show the country is clearly on track to exceed six billion contactless transactions in 2017.

My point at the time was that no one is predicting these volumes, or planning for them, yet they are happening. The payments industry is sleepwalking towards its future. The industry needs to think and act exponentially, and it needs a vision. A 25-times increase in volumes over 30 years is only an 11 percent per year compound growth rate—a rate that the world-leading UK Faster Payments system has exceeded consistently for many years.

We are already in an exponential payments world. The good news is that innovation and change in payments will be sustained for many years and the responsible action to take is to embrace it now.

]]>http://bankingblog.accenture.com/atomization-payments-part-two/feed14476http://bankingblog.accenture.com/atomization-payments-part-twoThe open banking opportunityhttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/u_jPrvxoq5s/open-banking-opportunity
http://bankingblog.accenture.com/open-banking-opportunity#commentsTue, 03 Oct 2017 18:27:53 +0000http://bankingblog.accenture.com/?p=4495Open banking—where banks expose their data, functions and services to an ecosystem of customers, employees, third-party developers and vendors—has been hotly anticipated in Europe. We know almost US$1 billion was invested in PSD2-enabled services in 2016, up 200 percent from the year before¹. Of course, some of this investment came from banks. But much of…

]]>Open banking—where banks expose their data, functions and services to an ecosystem of customers, employees, third-party developers and vendors—has been hotly anticipated in Europe. We know almost US$1 billion was invested in PSD2-enabled services in 2016, up 200 percent from the year before¹.

Of course, some of this investment came from banks. But much of it originated from the group of voracious digital competitors circling banks’ traditional territory. That’s no surprise. The drive towards open banking gives them a direct line into a potentially lucrative market. And, crucially, it’s a market where they’re well placed to deliver the flexible, personalized experiences consumers demand.

Read the report

Now, with PSD2 implementation across Europe just a few months away, new research from Accenture points to a major opportunity for UK banks: We’ve found that more than two-thirds (69 percent) of UK consumers say they won’t share their personal financial data with third-party providers.

Based on this survey of over 2,000 consumers, it’s clear that online retailers, tech firms and social-media players face an uphill battle to convince consumers to allow them access to their financial data. Especially since over half of them say they’ll never change their banking habits and adopt open banking.

So why not? It all comes down to a lack of trust. Trust in online platforms and social-media companies as providers of payments services is low. We found most consumers would be unwilling to initiate a payment through an online platform (58 percent) or a social-media company (82 percent).

Fear of fraud is the primary factor. An overwhelming majority (85 percent) of consumers point to the risk of fraud as the biggest barrier to sharing bank account information with third-party providers. Data protection risks and increased potential for cyberattacks also feature highly.

By contrast, more than half of British consumers said they would trust only their own bank with their account information when seeking services like a better mortgage rate or savings account. This should be music to the ears of UK bank executives. Having won the trust of their customers over a period of many years, now is the time to build on that heritage to secure crucial early advantage in open banking.

The overriding priority? Be open to being open. That starts with the culture. Banks have to encourage a cultural shift from the outset. Everyone from the c-suite downwards needs to be involved in the conversation about open banking. They need to see clearly how it can help the bank achieve its core objectives: gains in revenue growth, cost reduction and talent management. The bottom line? Open banking has the potential to be a key initiative within every bank’s digital transformation program. As such it should be high on the agenda. Take a closer look.

But there’s a caveat: While we found banks can and should move fast to up their digital game and capitalize on the advantage they have in open banking, there’s a new generation of consumers coming through—and they feel very differently. Younger consumers (aged 37 or under) are more willing to trust non-traditional service providers.

One-third of Gen Z’ers say they’ll be likely to use open banking instead of usual payment methods. That’s in stark contrast to the only six percent of baby boomers who feel the same way. The same generational split is obvious in another area: Forty-two percent of millennials and 52 percent of Gen Z’ers say they’ll give online retailers permission to initiate payments directly from their bank accounts using apps/websites.

While this shows clearly where retailers need to focus their efforts in creating new payment experiences, in-store and online, banks themselves need to take notice if they’re to attract and retain business from younger consumers. That means no let-up in investments in social media, wearables and secure but frictionless customer authentication.

Let us know what you think. Thanks for reading.

[1] Accenture Research Analysis on CB Insights data

]]>http://bankingblog.accenture.com/open-banking-opportunity/feed14495http://bankingblog.accenture.com/open-banking-opportunityThe atomization of payments: Part onehttp://feedproxy.google.com/~r/AccentureBankenBlog/~3/wcqPfjI4LYY/atomization-payments-part-one
http://bankingblog.accenture.com/atomization-payments-part-one#respondTue, 26 Sep 2017 14:22:21 +0000http://bankingblog.accenture.com/?p=4425In my view, electronic payments will accelerate dramatically over the next decade, driven by the “atomization of payments.” New business models are emerging, enabled by technology, resulting in increased transactions that will scale and scale. We are fast moving from batch to real-time transactions, with payments made continuously from bank accounts. Examples may include shopping:…

]]>In my view, electronic payments will accelerate dramatically over the next decade, driven by the “atomization of payments.” New business models are emerging, enabled by technology, resulting in increased transactions that will scale and scale. We are fast moving from batch to real-time transactions, with payments made continuously from bank accounts.

Examples may include shopping: in-aisle buying with an instant payment for every item picked off the shelf; self-driving cars, where ownership will diminish, replaced by on-demand rides, and payment for every journey; salaries, typically paid monthly to be paid daily, even hourly; company dividends paid daily (already evident in the BnkToTheFuture investment platform); smart meters will pay electricity daily and so on.

Benefits to expect from this transformation

The benefits will be broad: new products and services, improved cash flows, financial efficiency, improved certainty for businesses and individuals, better fraud prevention, reduced or eliminated reconciliations and errors. Changes will be driven by technology and new business models, and will be pervasive and profound. For example, payroll, billing systems and processes will be very different, and often unnecessary, and personal and business cash management will be largely automated.

Quantifying the impact of atomization

While it will take years for payments to atomize fully, let’s put some figures to quantify the impact using the UK as an example.

The UK has 19 million households. Assuming they buy 50 items a week (mainly groceries), which translates to 49 billion payments and items purchased. The UK has 37 million vehicles. Let’s assume each averages 10 trips per week—which is 19 billion annual trips and payments. Around 31 million people are employed in the UK—adjusting this for part-time workers, daily salary payments would amount to 7 billion payments annually. About 10 million people own UK shares, assuming they average 5 shares each—which is potentially 18 billion daily dividend payments annually. Finally, if the 19m UK households have smart meters making daily electricity payments, that is 7bn payments annually.

So, with some very basic analysis, we have identified around 100 billion future UK payments, and have barely scratched the surface. Add in other utilities, daily mortgage and other interest payments, on-demand music, phone calls, TV/video, media and new business models that are yet to be invented, and it is easy to see UK payments reaching up to one trillion transactions per year in the future, and multiplying by relative GDP factors, seven trillion in the US, six trillion in Europe and 30 trillion globally.

There are currently about 38 billion payments in the UK (including cash, cards and electronic) according to Payments UK (now part of UK Finance), so payment volume in the UK could rise 25 times or more.

When this will happen is anyone’s guess—10 years? 20 years? 40 years? But we need to plan for it!

In part two I will explain a precedent for this atomization and its implications, and what the payments industry needs to do.